U.S. housing market about to get SLAMMED

[alpha]

I'm not sure about China, but I wonder how this will affect the Canadian housing bubble.  China has already had strict capital controls since a year or so ago.  If that was partly fueling the Vancouver / Toronto housing market, that's definitely gonna be gone now.

 

As an aside, I just thought of something that could be the impetus for these tight lending standards by private investors.  It's almost comical when you think about the side effects of some of these policies coming down from D.C.  If you allow forbearance on mortgages for up to a year, why the hell would you want to lend money out for mortgages then as an investor?  You don't even have to prove hardship from Covid 19 to stop mortgage payments.  If I were investing in mortgage related securities, I would definitely not loan money to high risk groups.  And, if you believe prices are coming down, I would also be wary of lower risk groups.  People who were upside down their homes in post GFC were just letting the banks foreclose on the house and claiming bankruptcy on it. 

 

Finally, I'm seeing house price reductions start to ramp up.  Just saw another one relist 5% down.  I followed a couple listings price history, and incidentally, these houses sold at a peak during 2007.  Was resold for a huge loss in 2012.  Now, they're being re-listed higher than the peak in 2007.  Haha, wow.  Can't wait to see how low these prices get in a year or two.  We'll see.

 

Thousands of condos in Toronto were being rented out short term on sites like Airbnb, especially downtown where there is lack of hotels. All those rentals are basically dead now, and I suspect even after the lock downs are lifted tourism will be down for a while. It will be interesting to see how many of those condo owners can survive a downturn and if the high RE prices can be sustained.

[matts]

I'm not sure about China, but I wonder how this will affect the Canadian housing bubble.  China has already had strict capital controls since a year or so ago.  If that was partly fueling the Vancouver / Toronto housing market, that's definitely gonna be gone now.

 

As an aside, I just thought of something that could be the impetus for these tight lending standards by private investors.  It's almost comical when you think about the side effects of some of these policies coming down from D.C.  If you allow forbearance on mortgages for up to a year, why the hell would you want to lend money out for mortgages then as an investor?  You don't even have to prove hardship from Covid 19 to stop mortgage payments.  If I were investing in mortgage related securities, I would definitely not loan money to high risk groups.  And, if you believe prices are coming down, I would also be wary of lower risk groups.  People who were upside down their homes in post GFC were just letting the banks foreclose on the house and claiming bankruptcy on it. 

 

Finally, I'm seeing house price reductions start to ramp up.  Just saw another one relist 5% down.  I followed a couple listings price history, and incidentally, these houses sold at a peak during 2007.  Was resold for a huge loss in 2012.  Now, they're being re-listed higher than the peak in 2007.  Haha, wow.  Can't wait to see how low these prices get in a year or two.  We'll see.

 

Thousands of condos in Toronto were being rented out short term on sites like Airbnb, especially downtown where there is lack of hotels. All those rentals are basically dead now, and I suspect even after the lock downs are lifted tourism will be down for a while. It will be interesting to see how many of those condo owners can survive a downturn and if the high RE prices can be sustained.

 

I suspect many of the airbnb hosts will switch their units to long-term rental. This will bring down rents in the downtown core but why would they not survive?

 

now...those that had a "business" of signing 12-month leases just to turn around and throw it up on airbnb...those guys are gonna get smoked.

 

 

[krazeenyc]

I'm not sure about China, but I wonder how this will affect the Canadian housing bubble.  China has already had strict capital controls since a year or so ago.  If that was partly fueling the Vancouver / Toronto housing market, that's definitely gonna be gone now.

 

As an aside, I just thought of something that could be the impetus for these tight lending standards by private investors.  It's almost comical when you think about the side effects of some of these policies coming down from D.C.  If you allow forbearance on mortgages for up to a year, why the hell would you want to lend money out for mortgages then as an investor?  You don't even have to prove hardship from Covid 19 to stop mortgage payments.  If I were investing in mortgage related securities, I would definitely not loan money to high risk groups.  And, if you believe prices are coming down, I would also be wary of lower risk groups.  People who were upside down their homes in post GFC were just letting the banks foreclose on the house and claiming bankruptcy on it. 

 

Finally, I'm seeing house price reductions start to ramp up.  Just saw another one relist 5% down.  I followed a couple listings price history, and incidentally, these houses sold at a peak during 2007.  Was resold for a huge loss in 2012.  Now, they're being re-listed higher than the peak in 2007.  Haha, wow.  Can't wait to see how low these prices get in a year or two.  We'll see.

 

Thousands of condos in Toronto were being rented out short term on sites like Airbnb, especially downtown where there is lack of hotels. All those rentals are basically dead now, and I suspect even after the lock downs are lifted tourism will be down for a while. It will be interesting to see how many of those condo owners can survive a downturn and if the high RE prices can be sustained.

 

I suspect many of the airbnb hosts will switch their units to long-term rental. This will bring down rents in the downtown core but why would they not survive?

 

now...those that had a "business" of signing 12-month leases just to turn around and throw it up on airbnb...those guys are gonna get smoked.

 

You are assuming they are well capitalized enough to pay rent on their units for 3-6 months? of rent on all their units without any income from the units... I think the premise is these folks are undercapitalized, but I could definitely be wrong.

[matts]

 

You are assuming they are well-capitalized enough to pay rent on their units for 3-6 months? of rent on all their units without any income from the units... I think the premise is these folks are undercapitalized, but I could definitely be wrong.

 

You have a point. But in downtown Toronto specifically, which i was alluding to, it's just not the kind of market where someone with no buffer would own and rent. The market is just too expensive for lots of bad credit amateurs to be involved. The market has moved up strongly last several years so most unit owners would have plenty of equity to borrow against. Most responsible owners already have home equity lines set. There will definitely be downward pressure on rents and market values, but i don't see mass distressed selling or the banks tanking over real estate and liquidating.

[krazeenyc]

 

You are assuming they are well-capitalized enough to pay rent on their units for 3-6 months? of rent on all their units without any income from the units... I think the premise is these folks are undercapitalized, but I could definitely be wrong.

 

You have a point. But in downtown Toronto specifically, which i was alluding to, it's just not the kind of market where someone with no buffer would own and rent. The market is just too expensive for lots of bad credit amateurs to be involved. The market has moved up strongly last several years so most unit owners would have plenty of equity to borrow against. Most responsible owners already have home equity lines set. There will definitely be downward pressure on rents and market values, but i don't see mass distressed selling or the banks tanking over real estate and liquidating.

 

The premise is not that individual owners of apartments are they themselves turning their units into airbnbs. The premise is 10 different individual owners are  renting their units out long term to one airbnb "entrepeneur" ... who is in turn using airbnb as a platform to turn the 10 apartments into a mini-unlicensed "hotel" -- albeit at different physical addresses. Asset light!

[winjitsu]

https://www.npr.org/2020/06/03/867856602/millions-of-americans-skipping-payments-as-tidal-wave-of-defaults-and-evictions-

 

Perhaps we won't see the foreclosure / lower priced real estate event if lenders just tack on payments to the end of the term.

[Spekulatius]

https://www.npr.org/2020/06/03/867856602/millions-of-americans-skipping-payments-as-tidal-wave-of-defaults-and-evictions-

 

Perhaps we won't see the foreclosure / lower priced real estate event if lenders just tack on payments to the end of the term.

 

If you poke around Twitter, the sources indicate that buyers interest has recovered and inventory has tightened. The record low mortgage rates surely help and I think mortgage rates will likely go even lower because the margins to treasuries are fairly high right now.

[Read the Footnotes]

https://www.npr.org/2020/06/03/867856602/millions-of-americans-skipping-payments-as-tidal-wave-of-defaults-and-evictions-

 

Perhaps we won't see the foreclosure / lower priced real estate event if lenders just tack on payments to the end of the term.

 

If you poke around Twitter, the sources indicate that buyers interest has recovered and inventory has tightened. The record low mortgage rates surely help and I think mortgage rates will likely go even lower because the margins to treasuries are fairly high right now.

There seems to be a temporary supply/demand imbalance in some areas with little depth to the market and more motivated buyers than sellers. That dynamic will likely be short-lived.

[Viking]

Here are a couple of notes from what i am hearing here in Vancouver:

1.) condo’s are weakest part of market today

2.) demand has picked up as lock downs end; families are trying to get settled before school starts

- my guess is there are lots of families who live in a condo, apartment, townhouse who are getting sick of having no space. They have to be dying to own a detached house with more square footage and a yard.

3.) supply has not picked up in detached housing segment

- who is wanting to sell a single family house right now? You have space, a yard... the virus is likely coming back in the fall so and decision to move will likely be delayed a year.

- My guess is detached single family houses are going to remain in tight supply as long as covid is around as an issue.

4.) with demand picking up more that new supply coming on the market prices have held up well

5.) condo prices are down about 5% and detached houses are only down a couple of percent

6.) if you want to sell better to do it right away as opposed to waiting a year; prices are expected to be lower in another year (across all segments); CMHC is calling for price decline from 9 to 18% over next year in Canada.

7.) immigration is a key driver of economic growth in Canada. We bring in about 350,000 immigrants each year which adds about 1% to population growth. This in turn drives GDP growth and demand for housing. My guess is few immigrants are coming in as long as covid remains a problem.

8.)  few international students will be coming this fall. Canada had 720,000 international students in 2018 (2% boost to our population). This will be a big hit to GDP and demand for rental units.

9.) watch the alternative lenders for stress in the fall; if there are problems with lenders this is where it will likely pop up first.

10.) rental prices are down about 6-8%

- lots of young adults have move back home to ride out covid

- big universities in Vancouver have announced Sept classes will be online so demand from students will be minimal

- as mentioned above, minimal immigration and far fewer international students will materially shrink demand for rental units

- and makes sense AirBNB units will be moving to long term rental market (increasing supply) until tourism picks up

 

My guess is it will be after October that we will start to understand the real estate market here in Vancouver. By then we will understand what wave 2 of the virus looks like and also understand its economic impact.

 

————————-

For those of you who are interested in a local perspective (Vancouver) you might want to follow Steve Saretsky. He does a weekly update and posts it to YouTube. Real estate broker. Very informative. Likes to talk macro.

[Spekulatius]

https://www.npr.org/2020/06/03/867856602/millions-of-americans-skipping-payments-as-tidal-wave-of-defaults-and-evictions-

 

Perhaps we won't see the foreclosure / lower priced real estate event if lenders just tack on payments to the end of the term.

 

If you poke around Twitter, the sources indicate that buyers interest has recovered and inventory has tightened. The record low mortgage rates surely help and I think mortgage rates will likely go even lower because the margins to treasuries are fairly high right now.

There seems to be a temporary supply/demand imbalance in some areas with little depth to the market and more motivated buyers than sellers. That dynamic will likely be short-lived.

 

This could well be. COVID May be a larger deterrent for sellers to put a house on the market and moving somewhere else than for a buyer to tour a house and buy one. It’s hard to predict though. A lot of people predicted a steep drop in 2001/2002 and the dip was very shallow and short lived back then.

[fareastwarriors]

Here in the SF Bay Area (primarily East Bay), my friends and family All want to Buy but inventory is low and prices are still high.  They have been saving for years but the prices keep climbing and/or getting outbid. The cash is still there and their portfolios are bigger than ever.

 

Most of the people losing jobs were not in the market to buy here. Of course this can change as more people in higher up positions lose jobs too.  And obviously sentiment and/or economic reality can change quickly.

 

We're not all tech ipo millionaires, although many do work in tech or healthcare but most are self-employed. The ranges they are looking at start at $650k to $1.2m.

[thepupil]

House on my daily dog walk route went up for sale recently (listed May 6th), older (70-80 years) but updated nicely, not a huge yard, pretty big (almost 3K, 4 bedrooms, 3 full baths).

 

Listed at $1.275mm and took a full 3 weeks to go pending and it’s on Zillow as “contingency”. The fact that it took three weeks to sell and has a contingency indicates it likely went below list and was not subject to a bidding war (I thought it was priced too high for that).

 

A year ago, a house in this range selling with contingencies would not be the norm. No contingency bidding war instead. Perhaps, banks are being less aggressive with the pre-approval letters or buyers are in a better position to take some time/take less risk.

 

Same house sold in less than a week for $1.18mm in 2018, was listed for $1.075mm, sold for $1.2mm in 2007 (little appreciation in 13 years)

 

This is consistent with what I’m hearing; market’s moving a little more slowly, and things are perhaps a bit less frenzied, but pricing is not down year over year. The local realtors send a little mailer around with recent sales data. Same thing: pricing up but volume down. Some bidding wars on the lower /more affordable end.

 

Nothing is moving in the $1.7-$2mm+ range. Some houses sitting for months, mostly tear downs built on spec.

 

[Read the Footnotes]

This could well be. COVID May be a larger deterrent for sellers to put a house on the market and moving somewhere else than for a buyer to tour a house and buy one. It’s hard to predict though. A lot of people predicted a steep drop in 2001/2002 and the dip was very shallow and short lived back then.

In 2001/2002, it was pretty easy to see that the deflation of the stock bubble was just shifting in to a real estate bubble fueled by the monetary stimulus. After 9-11 there was an additional impulse to "nest" at home which added to the momentum already in place.

 

Although I think the current market conditions are likely to be short lived, people predicting a crash are likely not giving enough credit to the current monetary stimulus, plus the potential for additional stimulus. Plus it seems reasonable that people will place a premium on personal space in the future. That combined with the fact that home and landscaping improvements have been two areas that persisted in many places during the stay at home period may lead to a change in consumer preferences that may persist for several years at least.

[Cigarbutt]

This could well be. COVID May be a larger deterrent for sellers to put a house on the market and moving somewhere else than for a buyer to tour a house and buy one. It’s hard to predict though. A lot of people predicted a steep drop in 2001/2002 and the dip was very shallow and short lived back then.

Part#1

In 2001/2002, it was pretty easy to see that the deflation of the stock bubble was just shifting in to a real estate bubble fueled by the monetary stimulus. After 9-11 there was an additional impulse to "nest" at home which added to the momentum already in place.

 

Part#2

Although I think the current market conditions are likely to be short lived, people predicting a crash are likely not giving enough credit to the current monetary stimulus, plus the potential for additional stimulus. Plus it seems reasonable that people will place a premium on personal space in the future. That combined with the fact that home and landscaping improvements have been two areas that persisted in many places during the stay at home period may lead to a change in consumer preferences that may persist for several years at least.

i hesitated before putting this post up (it contains a certain amount of non-constructive criticism) but (because of one of wabuffo's recent comments about a specific subprime lender that failed with an unusual capital structure in 2009; reviewing the case has awakened nostalgia and the notion of value behind delayed gratification inversely related to the degree of feeling stupid during the preceding phase) i've been focusing on real estate opportunities (both personal and investment-related) in my area and defined entry points which are much lower than today's market values.

 

Because of part#1, i'm filled with envy. Filled with envy because that period required a LOT of work (real estate bubble) and the internal conclusions became increasingly uncomfortable as time went on, reaching a climax around 2006 (origination and global distribution of real estate-backed securities, repackaging etc). It's impressive that someone can say that this was easy to see in 2001-2. In the early 2000s, walking in my neighborhood (no dog) and talking to neighbors, i got relatively snubbed when i was trying to explain why we were sending our kids to public schools because of a growing discomfort with the growing disconnect. My neighborhood has changed a lot but as Mr. Benjamin Graham used to say: "Plus ça change, plus c’est pareil".

 

But with all due respect, to my noob ears, part#2 sounds like Alan Greenspan during the growing disconnect period.

[winjitsu]

https://www.cnbc.com/2020/06/03/mortgage-demand-from-homebuyers-spikes-18percent.html

 

Some stats to back up what people have been seeing anecdotally:

[*]"Mortgage applications to purchase a home rose 5% for the week and were a stunning 18% higher than a year ago"

[*]"As the coronavirus outbreak was surging six weeks ago, applications by homebuyers were down 35% annually"

 

It seems like pent up demand and limited supply. Summer is the hot season for residential RE so I think it's a bit too early to tell what the net impact of COVID is. Personally, I know of at least two cases where the market drop has spooked property owners so they're listing their extra units this summer once restrictions are lifted to lock in the gains from the past decade.

 

Still its hard for me to believe that markets will drop unless we start to see a uptick in foreclosures. RE bottom linked with peak foreclosures in 2011. In that regard, we are sided against governments to extend eviction moratoriums, extend unemployment $600 bonus, extend mortgage maturities, create another tranche of bailout funds (which apparently Airbnb hosts have been applying for?), keep rates low etc... 

 

 

[thepupil]

Since I know you all crave anecdotal data from the close-in DC metro burbs....house close to me, 3/2.5, 2500 sq feet, built I. 50’s...went pending / contingent on the day of listing @ <$900K; exhibiting the extreme liquidity at the lower end of this market.

[Williams406]

Sounds like somebody scored a bargain. Out of curiosity, what would a house like that rent for...ballpark?

[lnofeisone]

Since I know you all crave anecdotal data from the close-in DC metro burbs....house close to me, 3/2.5 old, 2500 sq feet, built I. 50’s...went pending / contingent on the day of listing @ $885K; exhibiting the extreme liquidity at the lower end of this market.

 

Pupil - I think DC market needs to be broken down into Anacostia/east of the river vs. main DC vs. MD/VA burbs. These are distinct markets with very unique characteristics. In main DC the layers tend to be 650K-850K, 850K-1.2M, 1.2M + (Georgetown and NW). 650K-850K the liquidity depends on where the property is and how much work is involved. In the 850K-1.2M range, anecdotally, we've heard 850K houses getting 5+ competitive bids, with escalators over asking, waiving contingencies as of 2 weeks ago (east side of H Street corridor - Emerald district). That's a sharp drop from what it was pre-covid but still amazing to me. When we were house hunting, the worst we've had was us being 1 of 17 bids and we were #16 despite the escalators of +10% over asking (we didn't waive contingencies). We had friends report nearly identical bidding on the lower end of the spectrum of the 850K-1.2M (eastern market/stadium armory area) when a basement with a certificate of occupancy is involved. Things markedly slow down at 1M+ range and appear to come to halt at 1.2M+. There is also an open house not far from where we live and there is a line of people outside. Market in DC seems to be resistant to COVID and economic issues.

[thepupil]

Question re rent: $3500-$4000; house prices are high relative to rents, but rental SFH’s are very low in supply so it’s difficult to benchmark (I actually think this underlies the demand to buy. If you want to live in a single family home, there’s more options to buy than to rent, even if you think buying isn’t a great investment)

 

Info: we were buyers about a year ago, in Kensington/Bethesda/cheaper parts of Chevy Chase. With its poor fiscal state, high property taxes, and low job growth, Montgomery County isn’t as hot as DC or NoVa, but we still have “good schools” and proximity to DC. 1-2% appreciation, high liquidity / supply demand imbalance for <$1mm 4BR, 2+ full bath, updated kitchen type of properties.

 

We put offers in on 3 houses and it took a no contingency (except financing) offer that escalated to a couple percent above ask to get it. Generally 3 or more offers on each house but definitely nothing like 17!!!

 

In our part, the $850-$1.2mm range with no work required is very liquid.you have demand from downsizers (people with McMansions in Potomac moving closer to DC after the kids went to college; these people suck because they are cash buyers and tough to compete with), builders (also cash) and Yuppie apartment dwellers who now want a yard/SFH but don’t need/ can’t afford huge house.

 

Generally 3+ offers the Tuesday after list for appropriately priced ones in good superficial condition.

 

Anecdotally, it’s a different market as you go past $1.3mm, more demanding buyers, less demand, and no bidding wars

 

But you can get stuff that sits forever if someone doesn’t price appropriately or it requires work (we millennials are a lazy generation, myself included with respect to major projects so I give you credit, based in your other thread)

 

Despite the liquidity and apparent high demand, prices don’t actually go up that much here in MoCo. We bought out house up <2% / year 2010-2019 and a $30-$40K kitchen remodel was done. I speculate that’s because DC proper has become increasingly relatively desirable with the continued gentrification (to put it politically incorrectly: people realized they didn’t have to only buy houses/go to school in the white neighborhoods, there are more places to live and raise a family than than Bethesda and that’s a good thing). Pricing is about flat since ‘07 and with rates down, it’s much more affordable, so in that weird way, I’d say prices have decreased over the 14 years since ‘06/7

 

I agree; thus far, market seems immune.

 

[lnofeisone]

 

We put offers in on 3 houses and it took a no contingency (except financing) offer that escalated to a couple percent above ask to get it. Generally 3 or more offers on each house but definitely nothing like 17!!!

When our realtor told us this I was genuinely shocked. Turns out south of Union Market has become very trendy. This was the worst. On average where we placed a bid, there were probably 5-8 other bids.

 

But you can get stuff that sits forever if someone doesn’t price appropriately or it requires work (we millennials are a lazy generation, myself included with respect to major projects so I give you credit, based in your other thread)

 

We ended up buying a house from an estate that started to renovate (they got through probably 30% of it) to sell but ran out of money. The beneficiaries had a contentious relationship and were not willing to finance the remaining reno. Let's hope that our calculation + margin of safety will be enough. 

[ratiman]

The supply from Petworth and northeast has kept DC prices low. I remember walking around northeast ten years ago and not feeling totally safe, and I walked around southeast ten years ago and was offered drugs from a tinted Toyota and then three DEA agents pulled guns on me. I walked around Anacostia and it was like they had never seen a white guy. Things have changed quite a bit since. In general though I think NoVa is underpriced vs DC because most people want that DC address. Nobody moves to DC from Iowa to live in Fairfax county.

[SharperDingaan]

You might want to keep in mind that the far-sighted downsizing McMansion DOES NOT WANT the 800K-1.2M house.

 

They want the 1/8 - 1/4 floor apartment in a brand-new building, with multiple rooms, and close to the amenities. 10-20 YEARS of minimal upkeep on the new build, and one of the rooms convertible into a live-in - when you would otherwise be going to a home. In most places, the $1M apartment is going to be a very nice place - and its size will ensure that it is 'worth' multiples of that, 10-15 years out.

When the family is making decisions on you.

 

SD

 

 

[thepupil]

You might want to keep in mind that the far-sighted downsizing McMansion DOES NOT WANT the 800K-1.2M house.

 

They want the 1/8 - 1/4 floor apartment in a brand-new building, with multiple rooms, and close to the amenities. 10-20 YEARS of minimal upkeep on the new build, and one of the rooms convertible into a live-in - when you would otherwise be going to a home. In most places, the $1M apartment is going to be a very nice place - and its size will ensure that it is 'worth' multiples of that, 10-15 years out.

When the family is making decisions on you.

 

SD

 

Yea we have lots of those here but too many developers had the same idea and supply>demand for now. Perhaps an opportunity for the far-sighted.

 

You can build/density with condo’s/apartments, but you can’t create any more SFH lot within reasonable distance to the city

 

https://bethesdamagazine.com/bethesda-beat/real-estate/lauren-condominiums-sold-at-foreclosure-auction/

 

The Lauren, promoted as some of the most luxurious – and expensive – condominiums in the Washington region, opened in 2016 with 29 units ranging from 1,444- to -3,500-square-feet, priced between $1 million and $5 million. The seven-story building on Hampden Lane also includes a 7,300-square-foot, $10.5 million penthouse.

 

NIH/ NIMH_ROS_MR_9.1.19

Some units include maid suites, private elevators, salons and private terraces

 

. The target buyers were “well-traveled 50+ year old couples” according to a post on one of the developers’ websites

 

The business plan for the development of the Lauren was predicated upon a significant recovery of the Potomac and Bethesda upper end housing market with strong buyer demand for urban, close-in luxury condominium residences which hasn’t occurred in the time frame expected,” a publicist for Lauren developers said in a statement issued Thursday. “The Potomac and Bethesda residential markets have underperformed over the past several years and maintain extremely depressed pricing relative to where housing prices were prior to the last recession resulting in limited absorption for all new condominium projects in these markets.”

[SharperDingaan]

Luxury Apartments in Paris (as in much of Europe) are an interesting take. Fractional ownership for a 4-5 week period.

Airbnb is essentially just a 'downmarket' imitation of long standing existing practice. https://parispropertygroup.com/apartments-for-sale-in-paris-france/

 

Invitation only, almost always just the major cities (Paris, Berlin, Milan, Barcelona, etc.), fractional ownerships limited to the summer months (sold to Americans). The long termers 'summer' in the country, to escape the tourists.

 

In a Washington DC, the fractional ownerships would target the diplomatic core,

and come with 'built-in' benefits.

 

SD

 

 

[Spekulatius]

^ I think the bullish take for suburban houses that their appreciation For 10-15 years has lagged so far below core city areas now that they have become a great value in some areas. It’s highly attractive for some millennials who probably get into the age of having kids where the better suburban schools and more space make this option more attractive.

 

Then we have a trend towards remote working and the pandemic which generally was far worse to experience  in cities as additional factors lately.